There’s a cost to growth

Here’s a universal truth that doesn’t get enough airtime among business leaders – and that many leader teams, therefore, don’t fully appreciate:

Growth must be funded.

I started working with a company recently that developed a BHAG of doubling in size over the next 5 or so years. The first year went well – but last year was rough, and they’re now feeling pulled between the commitment they made to their BHAG, the desire they have to distribute profits at a level they’re accustomed to, and the need they have to correct some operational issues.

They have a newfound appreciation for the fact that the decision to grow often comes at the expense of the ability to harvest profits.

What does it mean that growth must be funded? Here are a few of the things that you’d need to invest in to grow – that you wouldn’t need (or wouldn’t need as much of) if you weren’t growing:

Expanding your training and talent development efforts

Developing new marketing programs

Hiring more salespeople or programmers – and if they’re hard to find or need training, then you need to hire them before you have the revenue to support them

Expanding into new facilities or adding equipment

There can be many more, but you get the idea.

On top of those tangible investments, you’d have two more hidden costs: the time that your team spends solving issues associated with the growth, and the inevitable inefficiencies you’ll have the first time you do things.

This isn’t to deny the wonderful benefits of growth, which include more people and customers to make your stuff better, more resources to solve problems and offer rewards, and more impact and influence on your markets and community.

But as you develop your BHAG, realize that you’ll also benefit from having a Big Heavy Accessible War Chest. And that’s why I often recommend that the first 2 years of a growth strategy focus on increasing your profitability and building your reserves. The path to your BHAG will be a lot more fun and manageable if you have the money to deal with the challenges you’ll face.

Many of you reading this post are 10%ers. And there’s something in the back of your mind eating away at your conscience. You know there’s something not quite right about it, but you tell yourself that 10% has always served you well.

And you might be right. You’ve probably gotten along well enough with your 10%. Then again, you may feel like it no longer has the same effect that it used to. So let’s take a look at your 10% and see if it’s still serving you.

I’m inspired to write about 10% because I met with a guy last week who said, “It’s just what I’ve always done. I don’t really have a reason for it, and sometimes I wonder if it’s what I should be doing. But I’ve never known how else to do it.”

Later on, after our discussion, he said, “Yes, that’s what I want – that would help me, and it would help my team. They’ve always been a bit confused and defensive about the 10%.”

What am I talking about? Let me use his words, “We did a strategic plan back in 2008, but we’ve never updated it. It was helpful and we did some things because of it. But for the last 5 years, I’ve just said that we should grow by 10% next year. And that’s what I say at the start of each year. I kind of know that I could or should have more to my goal, but we’ve been OK just trying for that 10%.”

It’s something I’ve heard many times before. So, let’s look at the good, the bad, and the ugly of the “Let’s grow 10% next year” approach to strategic planning.

The good is that it’s an easy way to communicate that you want to grow, but not too much. It says, “Let’s get better at what we’re doing.” It’s also quick – most leaders who use 10% as a goal (I just can’t bring myself to call it a strategy!) need about 1 second to access their intuition and come up with that number. And it’s also good that most leaders who use 10% don’t enforce it – some years they’ll decline 1%, and others they’ll grow 20%, and both are received equally.

The bad is that 10% doesn’t tell anyone how to achieve 10% growth, and, since the person who used it likes a planning process that only takes 1 second, they usually won’t commit the time to strategy and planning to figure out how to get the 10%. And so, they just react to whatever the marketplace offers. That’s not good, but often times 10%ers are bailed out by a strong market, and so reacting is bad but OK.

Which brings us to the ugly, which arrives when a 10%er is managing a business in a market that is seeing substantial change. If that’s the situation, 10% is of no use, and in fact may be counter-productive. Because at the heart of 10% is “let’s change, but not more than we’re comfortable with.” And that can breed complacency that appears to be fine…until it’s too late for any small adjustments to work. And if the only goal you’ve ever had is 10% growth, you and your team are not going to be prepared when you need to lead your company outside your comfort zone.

So, if you’re a 10%er, you have a choice – to be passive or active. Either keep enjoying that comfortable feeling until you’re forced to do more…or lead your team to have a new set of discussions that develop your company’s ability to identify opportunities a little outside your comfort zone, go after them in smart ways, and stay ahead of the market.

Loch McCabe of Shepherd Advisors uses an interesting frame for thinking about your company’s health and growth. What would it take to double your revenues – and then double them again? Loch recently spent an hour with me describing his process for creating Exponential Growth, as he calls it.

Those kind of results aren’t easy to achieve, but there’s definitely a formula that works, and Loch is good at describing that formula. (And he’ll be sharing it during his upcoming workshops 10/22 in Ann Arbor and 10/24 in Saginaw.)

What stands out for me in Loch’s process is the focus on customers and markets. At the heart of Exponential Growth is customer-based strategy – using insights about your customers to identify the “leverage points” that will give you outsized returns for the investments you make.

From there, he goes beyond your current customers to look at emerging market trends. An important part of exponential success is being able to ride the right market waves, and Loch’s process highlights which ones to jump on.

Loch has asked me to talk about the organizational-development aspects of Exponential Growth during the workshops. So, when you get the strategy part right, what does it take from a leadership, teamwork, organization, and culture perspective to manage and execute that growth.

Let me give you a sneak peek of my thoughts here…

Organic Growth is more accommodating of cracks and stresses in your organization. Don’t have the right VP of Ops? Haven’t solidified your sales process? Don’t have a solid pipeline of talent? With Organic Growth, those issues are OK – they’ll need to be addressed, and will be over time, but they won’t create any serious risk.

Exponential Growth, on the other hand, forces and enables you to get your house in order. It magnifies the strengths and weaknesses of the organization. It offers a carrot and a stick for dealing with your issues – solve them and you see big results; avoid them and you’ll feel the pain.

Honestly, Exponential Growth is not for most people. It requires strong leadership, solid teamwork, effective operations, and a dynamic culture. Of course, that’s what most companies are aiming for – and struggling with. And that, I think, is the opportunity that an Exponential Growth vision offers. It’s like saying we’ll put a man on the moon – it’s a rallying vision to get people to break out of the patterns they have and address the issues that can linger and smolder for years and years if the goal is just Organic Growth.

What could a game plan for Exponential Growth do for your company? If you find it intriguing to think about, you should talk with Loch or attend one of the workshops to find out more – see the links above, or let me know you’re interested and I’ll connect you.

My 11-year-old son started playing hockey goalie this year. At a recent goalie clinic, his coach said something I think applies to business leaders…

“Goalie is a hard position. It’s hard to be in your stance through the whole game, it’s hard to shuffle across the crease while you follow the puck, it’s hard to move out to challenge the shooter. But those are the right things to do – those are what will help you make the save. You can play the easy way, but you won’t be successful. So, I want you to remember a simple phrase to help guide you while you’re in practice and in games…If it’s easy, it’s wrong. If it’s hard, it’s right.”

Let me review some of the easy things that I see business leaders do:

Make important decisions before understanding the consequences

Make important decisions without involving the people who will carry them out

Focus on feel-good marketing activity rather than figuring out their marketing ROI

React to sales opportunities rather than focus on the ones that are best for their business

Hire someone that they like

Keep someone they shouldn’t have hired

Avoid the hard decisions during strategy meetings, so that the decisions are left for people in the field to deal with when they’re faced with a problem

Assume they know what their customers or markets want without asking them

Don’t question their own biases and blindspots

In every one of those situations, it’s hard to do the right thing. It would be nice if they weren’t hard, or if there was a magic wand that would make them easy. But that’s not how those situations work. And what happens if you handle them the easy way? Things take longer, you create more problems, you spend more money. In short, the easy way is actually not the easy way.

So, here’s the key message I want you to remember as a business leader: When you’re in a complex or important situation, the hard way is actually the easiest way in the long run, if you’re aiming for long-term business success.

I know it’s not easy, but please do the right thing. It’s what your company, customers, markets and communities need from you.